Correlation Between Toyota and BYD
Can any of the company-specific risk be diversified away by investing in both Toyota and BYD at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Toyota and BYD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor Corp and BYD Co, you can compare the effects of market volatilities on Toyota and BYD and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Toyota with a short position of BYD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and BYD.
Diversification Opportunities for Toyota and BYD
Significant diversification
The 3 months correlation between Toyota and BYD is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and BYD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and Toyota is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Toyota Motor Corp are associated (or correlated) with BYD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Toyota i.e., Toyota and BYD go up and down completely randomly.
Pair Corralation between Toyota and BYD
Assuming the 90 days trading horizon Toyota is expected to generate 22.36 times less return on investment than BYD. But when comparing it to its historical volatility, Toyota Motor Corp is 8.82 times less risky than BYD. It trades about 0.02 of its potential returns per unit of risk. BYD Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,102 in BYD Co on August 26, 2024 and sell it today you would earn a total of 458.00 from holding BYD Co or generate 14.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Toyota Motor Corp vs. BYD Co
Performance |
| Timeline |
| Toyota Motor Corp |
| BYD Co |
Toyota and BYD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and BYD
The main advantage of trading using opposite Toyota and BYD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, BYD can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BYD will offset losses from the drop in BYD's long position.| Toyota vs. Synchrony Financial | Toyota vs. St Galler Kantonalbank | Toyota vs. Prudential Financial | Toyota vs. Bank of Ireland |
| BYD vs. Samsung Electronics Co | BYD vs. Samsung Electronics Co | BYD vs. Hyundai Motor | BYD vs. Toyota Motor Corp |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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